Yet another budget deficit

Government will now need IMF to adopt a lenient approach as it considers Pakistan for the last loan tranche of $102m

The government has yet again missed its budget deficit target in the recently-concluded fiscal year, meaning that it will now need the International Monetary Fund (IMF) to adopt a slightly lenient approach yet again as it considers Pakistan for the last loan tranche of $102m. The IMF’s Extended Fund Facility will come to an end in September, bringing down the curtains on a three-year bailout package that helped the country increase its foreign exchange reserves and avert a balance-of-payments crisis. But, as had been the case with every review, Pakistan will seek another waiver on account of missing the IMF-determined budget deficit target. Finance Minister Ishaq Dar said the reason was the economic growth rate that clocked in lower than targeted. Earlier, in response to the cause behind missing the growth rate target, Mr Dar pinned the blame on the contraction witnessed in the agriculture sector.

Despite booking circular debt in the 2013 fiscal accounts, which in effect took the benchmark budget deficit higher in its first year in power, the PML-N government has been unable to meet the target. With unprecedented levels of tax rates currently in place and the amount of indirect taxation that forms the major chunk of total revenue, the deficit target continues to shame us. The government has also yet to book circular debt that has piled up again in its latest books, meaning that the deficit would be slightly higher. Also, there has been a major failure in tax strategy in the last few years. While basic economic indicators have shown improvement, revenue collection and expenditure tell a different story — despite Pakistan cutting down on development spending. In fact, there is very little right about the current taxation system. The number of tax return filers has actually gone down, but revenue has soared. This conveys the government’s ill-directed and short-term strategy; penalise those who are already paying. The formation of the Tax Reforms Commission has not led to any innovative solutions either and the public is left to pay for past and present mistakes.

Published in The Express Tribune, July 16^th, 2016.

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